A.M. Best Co. has affirmed the financial strength ratings (FSR)
of A+ (Superior) and issuer credit ratings (ICR) of "aa-" of the life
insurance subsidiaries of Manulife Financial Corporation (MFC)
(Toronto, Canada) [NYSE: MFC]. Concurrently, A.M. Best has affirmed the
ICR of “a-” as well as all existing debt ratings of MFC. The outlook for
all ratings is stable. (See link below for a detailed listing of the
companies and ratings.)
The rating affirmations reflect Manulife's solid market position in the
global markets, continuing progress in de-risking its balance sheet by
reducing its exposure to equity and interest rate risks, and its revised
product focus on less capital intensive lines of business while
maintaining adequate regulatory risk-adjusted capitalization, despite
low interest rate challenges and restructuring of its business platform.
MFC also maintains significant scale in its core business lines and has
seen growing assets under management.
A.M. Best notes MFC’s proactive risk management platform including
enhanced risk oversight functions. Over the last few years, MFC's
various strategic actions have moderated the impact of the
macro-economic challenges and equity market volatility on its
consolidated risk profile and balance sheet. Key strategic actions have
included accelerated macro and dynamic hedging programs, changes in
product design and pricing and the targeting of specific products for
growth in its various geographical markets while reducing the sales of
capital intensive products, especially variable annuities in the United
A.M. Best remains concerned with MFC’s significant in-force exposure to
equity market and interest rate risk, particularly within its insurance
segments, reduced interest coverage and somewhat elevated financial
leverage. Despite discontinuing sales of U.S. variable annuities,
largely written though John Hancock Life Insurance Company (U.S.A.),
A.M. Best believes that MFC will continue to face challenges in managing
its large book of in-force business given the persistently low interest
rate environment and equity market uncertainty.
In addition, MFC’s consolidated earnings have remained volatile due to
unfavorable reserve adjustments for actuarial assumption changes,
largely related to current interest and equity market conditions.
Canadian International Financial Reporting Standards (IFRS) generally
result in more volatile results with changing equity values and interest
rates relative to U.S. GAAP. On a U.S. GAAP basis, he company’s results
were more favorable. A.M. Best also remains concerned over MFC’s
long-term care book of business, currently written through John Hancock
Life Insurance Company (U.S.A.), but notes that the company continues to
make progress in achieving its targeted price increase approvals. In
addition, MFC's exposure to real estate, through direct mortgage loans
and commercial real estate, remains high as a percentage of total
invested assets. A.M. Best recognizes that the direct mortgage loans
have been conservatively underwritten with low loan-to-values and high
debt service coverage ratios and continue to have low amounts in
arrears. In addition, approximately one-third of the company’s mortgage
portfolio is insured by a federal government agency, Canada Mortgage and
Housing Corporation (CMHC) (Canada’s national housing agency).
A.M. Best believes MFC’s ratings are well positioned at their current
rating level for the near to medium term. Key factors that could result
in negative rating actions include a significant and sustained decline
in MFC’s risk-adjusted capitalization; operating performance that does
not meet A.M. Best's expectations over a sustained period; or difficulty
in managing large in-force blocks of interest and equity market
For a complete list of Manulife Financial Corporation and its
subsidiaries' FSRs, ICRs and debt ratings, please visit www.ambest.com/press/122006manulife.pdf.
The methodology used in determining these ratings is Best’s Credit
Rating Methodology, which provides a comprehensive explanation of A.M.
Best’s rating process and contains the different rating criteria
employed in the rating process. Best’s Credit Rating Methodology can be
found at www.ambest.com/ratings/methodology.
Founded in 1899, A.M. Best Company is the world’s oldest and most
authoritative insurance rating and information source. For more
information, visit www.ambest.com.
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